An article in the International Herald Tribune (February 27, 2011) describes the role of Glencore, a commodity trading company. Glencore provides raw materials supply to OEMs (ArcelorMittal, Sony, Chevron etc) from raw materials suppliers, managing the risk of weather, price changes, piracy risk or political risks.  At times, the firm purchases mines (like Katanga which mines copper and cobalt in the Congo), for others it uses a combination of financial instruments and deals with governments.  Unlike financial markets, Glencore’s deals focus on the logistics of supply reliability of commodities.  The long term contracts for volume with suppliers enable the company to do a virtual break-bulk to supply OEMs with their needs.  Will the importance of companies like Glencore increase as commodity prices become volatile and firms become hesitant to use financial instruments directly ? Does competition in the Glencore type market ensure that the markups are reasonable or does the upstream supply become illiquid and thus drive up prices ? What is the optimal approach for a procurement manager i.e., what fraction of supplies should be contracted with such suppliers ?